Abstract: In the northern corn-belt of USA where agricultural drainage has been linked to excessive nitrogen loading to the Mississippi River, growing more perennial grasses has been proposed for bio-fuel production. This paper presents a simulation study on the hydrological effects on subsurface drainage of substituting perennial grasses for corn/soybean rotation in southern Minnesota. Long-term simulation with DRAINMOD based on 90 year weather records showed that higher consumptive uses of water by grasses may significantly reduce subsurface drainage discharge, especially in the years following prolonged dry period. The bio-drainage effect of grasses on drainage reduction is much more significant than engineering measures such as reducing drainage intensity by reducing drain depth or increasing drain spacing. Growing deep rooted perennial grasses may significantly reduce negative impact of subsurface drainage discharge on aquatic environment of the study area.